TransAlta Corp (TAC) 2012 Q4 法說會逐字稿

Hello, this is the conference operator. Welcome to the TransAlta Corporation 2012 fourth-quarter and year-end results conference call. As a reminder, all participants are in a listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions.

(Operator Instructions)

At this time I would like to turn the conference over to Brent Ward, Director, Corporate Finance and Investor Relations. Please go ahead.

Thank you, Brock, and good morning everyone. I am Brent Ward, Director of Corporate Finance and Investor Relations.

Welcome to TransAlta's 2012 fourth-quarter and full-year conference call. With me today are Dawn Farrell, President and Chief Executive Officer; Brett Gellner, Chief Financial Officer; John Kousinioris, Chief Legal and Compliance Officer; and Todd Stack, Vice President and Treasurer. Earlier this morning we released our fourth-quarter and full-year 2012 results. We hope you have had a chance to review them. For those of you who are not on our webcast, we have also posted our 2012 Q4 and full-year presentation on our website under our investor section, as we will be referring to the presentation during this call.

Further information will be posted after the call. All information during this conference call is subject to the forward-looking qualification which is detailed in today's news release and incorporated in full for purposes of today's call. The amounts referenced in this review are in Canadian currency, unless otherwise stated. The non-IFRS terminology used in this call, including comparable earnings, comparable EBITDA, gross margin, funds from operations, and free cash flow, is reconciled in the MD&A. Per-share figures in the fourth-quarter 2012 are based on an average of 255 million shares outstanding, compared to 224 million shares in the fourth quarter of 2011. For the full year, the average number of shares outstanding for 2012 is 235 million compared to 222 million shares in 2011. Please note financial information has been rounded to the nearest whole number.

On today's call, Dawn and Brett will provide an overview of our operational and financial performance for the fourth quarter and the full year, provide an update on recent events and activities, and before going to Q&A, Dawn will provide commentary on our outlook for 2013.

With that, let me turn the call over to Dawn.

Thanks, Brent, and welcome everyone.

Let me begin with 2012. It was clearly a very busy year for TransAlta, a year of positioning TransAlta for growth through the decade. There was a lot to do, and I'm happy to report today that most, if not all, of the challenging issues are behind us, and 2013 will be a return to a more normalized level of operation for TransAlta. The repositioning of the teams into a new business model for the Company has established the right configuration, and momentum, required to really get underneath the type of growth we want to invest in, which are projects that ensure our shareholders can continue to expect, and have confidence in, the long-term stability of our cash flows and incomes for years to come.

Let me walk you through the highlights from 2012 in more detail. We spent approximately CAD500 million of sustaining capital in 2012, which included the completion of the three-year investment program in our coal fleet that will enable us to sustain high levels of availability, and upgrade our capabilities, a plan we put into action at the end of 2009, and that is now complete. Over the year, the extensions of major maintenance programs meant that we completed in the year six major planned outages in our operated coal fleets, three major planned outages in the gas fleets, and a number of smaller planned outages in the wind and hydro fleets. And of course, there were also two major outages in our non-operated coal plant.

We did all of this planned work, and at the same time, we were able to achieve an overall fleet availability of 90%. This means that the operating teams at TransAlta had to perform exceptionally well on their forced outage rates. Overall, the 90% availability continues to be well above the averages we see when we benchmark all of our units against other plants of our size, and vintage, across North America. The operating teams undertook the routine and major maintenance work, and they delivered first quartile safety performance, with an injury frequency rate of 0.89. This result demonstrates our teams are very capable of investing CAD500 million in sustaining capital well, and in a single year, and maintaining first quartile safety performance, while achieving an availability of 90%, a testament that our team is dedicated to value creation for our shareholders.

With the bulk of the major investments behind us, the operating team is now executing the next three-year plan, with a more normal level of sustaining capital being invested in our fleet of approximately CAD350 million a year. The team is set up to do this, and is dedicated to continually improving on costs, safety performance, and delivering availability in the 89% to 90% range.

Our teams have also--our teams in 2012 also worked on two major arbitrations in the Alberta coal fleet, which were completed and positive for our shareholders. The result of these arbitrations confirmed our dedication to meet the test of a good operator, something that you can rely on us to manage and protect, and which will protect the investments you've made as a shareholder. Knowing the dedication of the TransAlta employees to all of our assets, I wasn't surprised by these outcomes. And these results should give you additional confidence in our dedication to running a strong operation.

In our US operations, our key piece of work for 2012 started out by securing a long-term contract for Centralia with Puget, and the year ended with Puget signing the contract. In addition to the Puget contract, a number of other contracts were executed to reduce the cost structure of Centralia, in what has become a very competitive cost environment for coal plants. In the Pacific Northwest, high water and low gas prices have depressed spot market prices for over three years now. Luckily, our hedging strategies in the past had secured cash flows, but as prices began to fall, and these historical hedges rolled off, the plants simply had to find ways to be more competitive in that market.

We were a bit disappointed when the final regulatory decision contained conditions that meant that Puget and the regulator had to enter into additional discussions before the contact could be finalized. We expect final approval by the end of March, which pushes the completion of this goal into 2013. Nevertheless, we ended the year with a plant sufficient for upside, if prices should improve in that region, and with confidence that the plant had the kind of cost structure that can deal with a low-priced environment.

Here in Canada, for the better part of 20 years, the TransAlta team has been working with the federal regulators on regulations for carbon for coal plants. My view is that this uncertainty has been tough for investors, as it has been difficult to calculate future cash flows for the coal plants without the knowledge of how to predict the future costs of carbon taxes or carbon abatement technology. The federal greenhouse gas rules, that were announced and put into effect in September of 2012, listed this uncertainty for our investors. Today you can invest in TransAlta knowing that our existing stock of Canadian coal plants can operate without additional CO2 costs until they turn about 48.5 years old.

This gives us a long horizon to plan for end-of-life investments for many of our plants. We will continue to work with the Alberta government to align all our emissions to these new end-of-life time lines over the coming years. The greenhouse gas legislation is important for Canada, and Alberta, as it shows international leadership in dealing with CO2 from the existing coal plants. More importantly, this legislation is a testament to the principles of sustainability where capital isn't wasted, jobs are maintained, electricity prices for customers in Alberta remain affordable, and producers like TransAlta can plan end-of-life capital expenditures to achieve the new standards with innovative technology options.

Our investors like TransAlta's track record on sustainability, and it's important that all investors understand how this legislation protects their investment today, and sets us up to make future investments in replacement plants will be needed in the Alberta market play. These new plants will include our Sundance 7 plant, which we also worked on throughout last year. Even though we were busy on coal in both Canada and the United States, we felt it was important to start executing more aggressively on our growth strategy. We completed the acquisition of the 125-megawatt Solomon power station from Fortescue Metals Group. This represents a significant expansion of our business in Western Australia, and provides TransAlta with a new and valued customer in Fortescue Metals Group.

This acquisition delivered a 42% increase in our install capacity based in the region, and fits perfectly with our business model of supplying power to large behind the fence mining customers under long-term contracts. The acquisition was immediately accretive to both earnings and free cash flow, as we began to receive capacity payments last October. The opportunity also exists to leverage the Solomon Project into future growth in that region. We also signed a partnership with MidAmerican to ensure we have the capital to capture what we believe to be tremendous opportunities in the Western Canadian power market. We have a long-standing relationship with MidAmerican going back to 2001, and this strategic relationship simply gives us the ability to do (inaudible).

At the end of the year, we realigned the Company, reduced our workforce, all as part of an ongoing strategy to continuously improve operational excellence and to accelerate growth. Today, I like what I'm seeing from our Growth Team, and I like even more what I see from our Operations Team for delivering operational performance that demonstrates to customers that we continue to have a strong track record of reliable and safe generation. On balance for 2012, there were two items we were disappointed in. The Trading Team delivered CAD3 million in gross margin, the lowest in its history. I'm pleased to report, today, that the Trading Team got back on track in Quarter Four, and through the beginning of this year, to deliver their usual run rate of CAD40 million to CAD60 million in gross margin.

The other disappointment was the arbitration panel's decision to not grant our destruction claim on Sundance units 1 and 2, resulting in the investment on of CAD190 million to restart those units. This outcome has two consequences. First, it slowed down our work on Sun 7, as that unit in the Alberta market won't be needed until the end of 2018. Second, but thankfully, because of the greenhouse gas legislation that extended the life of Sundance 1 and 2 units to the end of 2019, the dollars have now become an economic investment for our shareholders that provides our investors a return over the next six years as the units run.

Before I make a few comments on the fourth quarter, let me close out 2012 by restating, it was a big year for TransAlta, and our team got a lot done. The measures we have taken have--the measures that we have undertaken have the Company well-positioned, economically strong, and growing in markets that will bring sustained, long-term value for our shareholders. On the fourth quarter last year, Trading began its return to a more normal level of operation when it delivered CAD13 million in gross margin. Despite the lower Trading results, the quarter delivered CAD0.21 per share versus CAD0.13 per share, in quarter four of 2011. What this showed was that our underlying Generation business performed well. As we work our way into 2013, having both Trading, and Generation operating well, will allow us to be more focused on growth.

I'd like now to turn the call over to Brett, so he can give you a more comprehensive update on the numbers for the quarter and for the year. When I come back on, I will finish with an update on events, views for 2013, and beyond.

Okay, thanks, Dawn. Good morning, everyone.

So as this slide shows, and as Dawn indicated, the Generation segment performed well this quarter, and on a year-to-year over year basis, delivering CAD27 million more in gross margin quarter over quarter, and CAD45 million more year over year. The increase was from all three segments, but really largely driven by our higher Hydro volumes, lower unplanned outages, and the capacity payments from Sundance 1 and 2. I should also note that these gross margins do not include the addition of the Solomon acquisition as it is accounted for as a lease, but it does show up in our comparable EBITDA and FFO phone numbers.

One of the key drivers of our gross margin improvements in the Generation segment was our availability. As Dawn indicated, we achieved 90% for the fleet year, for the whole year, even with the significant planned outages in the year. In addition to an improvement in our gross margins, we realized reductions in our OM&A costs. We targeted a 5% reduction for 2012, but actuals came in at a 10% reduction or CAD52 million better. This was primarily due to driving efficiencies throughout the organization, but also lower compensation costs.

Our comparable EBITDA, and FFO, were also higher in the quarter relative to the same period last year. These increases were driven by improvements in the Generation segment, as I just talked about, and also included the acquisition of Solomon, and all of that more than offset the lower Trading results.

Comparable EBITDA in the quarter was CAD310 million, up CAD43 million, and FFO was CAD205 million, up CAD16 million from the same period last year. For the full year, both comparable EBITDA and FFO were down approximately CAD30 million each, due to the lower results from our Trading segment. In terms of capital for the year, we spent CAD439 million in sustaining capital, and CAD57 million on productivity initiatives, which was in the range we had planned. Having finished our three-year intensive major maintenance program on the coal fleet, we expect to return to a more normalized level of capital expenditures, in the range of CAD295 million to CAD335 million per year in 2013, and targeting approximately CAD350 million per year, on an average, over an outage cycle.

Our spend, in 2013, on projects adding incremental EBITDA, is currently estimated to be in the range of CAD145 million to CAD170 million, most of which is for the rebuild of Sundance 1 and 2. So to conclude, we are well-positioned to grow and support the balance sheet. We maintain access to the capital markets for debt, equity, and preferred shares. And we continue to have approximately 70% participation rate in the dividend reinvestment plans. We have only one bond maturity in 2013, which is CAD300 million late in the year, and we continue to maintain strong liquidity with CAD755 million available as of December 31st.

With that, I'm going to turn it back over to Dawn.

Thanks, Brett.

Let me start with a quick update on two key events. First, an update on the Puget contract. There continues to be a lot of work being done by Puget and the commission as they work towards a solution. TransAlta's role is to support this process, and we do expect a favorable resolution by the end of March. Secondly, this past November we made a decision to realign the Company to ensure focus on operations and growth, and eliminate duplication and costs. This initiative is on track to achieve CAD25 million to CAD30 million a year in sustainable savings by the end of 2013.

I'd like to move to our market update and our outlook for 2013. As we look ahead, we see the potential for slightly higher prices in the Pacific Northwest. The Pacific Northwest continues to be driven by slightly higher gas prices, as we move through the beginning of 2013. Forward gas prices have improved by roughly 30% compared to 2012. This is a significant recovery, and a positive sign. In Alberta, prices are expected to weaken as new capacity, including Sundance units 1 and 2, come on stream toward the end of this year. Despite that softness over the medium term, new plants will be required in Alberta before the end of the decade, as a number of coal plants retire at the end of 2019. The market is still expected to continue to grow in the 2% to 3% range over this timeframe.

The recent weakness that we've seen in spot market prices in Alberta, has highlighted the importance of being prepared for any kind of power price environment. We are continuing to take steps to increase our levels of contractedness across the fleet to support revenue certainty. We are 85% hedged for 2013, and working toward increasing our in mid- to long-term hedge levels. In terms of 2013, we have been able to execute a number of hedges in the CAD60 to CAD65 per megawatt hour range in Alberta, although forward prices for the balance of the year are currently in the CAD50 to CAD55 megawatt range.

As we move further into 2013, we remain focused on growing the Company. We continue to see operation--opportunities in all of our key markets, both greenfield and acquisition. Our new Richmond wind farm is on track to be fully commissioned in March of this year. This project will add 68 megawatts to our renewable fleet, and will provide stable cash flow for the long term PPA with Hydro-Quebec. With our MidAm partnership, we continue to evaluate oil sands, and [LNG] opportunities in BC and Alberta, and we also continue to work on our Sundance 7 investment, which will be a competitive project that will keep power prices affordable for Albertans at the end of this decade.

In Australia, the Solomon power plant is in the final stages of commissioning, and it's tracking out plant. We also started receiving our full capacity payments in October of last year, as I said earlier. The Australian team continues to evaluate a number of other opportunities, and in the Western United States we continue to explore acquisition opportunities primarily in wind generation.

So finally just a few words on our 2013 plans. As we communicated to you during Investor Day, our target is to deliver CAD800 million to CAD900 million in FFO. A key part of this is to deliver 89% to 90% in availability, and gross margins from the Trading business in the range of CAD40 million to CAD60 million, and we are confident on both of those fronts.

On the growth side, our goal is to add CAD40 million to CAD60 million in EBITDA each year. This will provide significant opportunity for the Company, between 2013 and 2020, and bridges us to the cash flows from the roll off of PPAs in 2018 and 2021. When it comes to expanding our customer base, our objective for 2013 is to grow to 500 megawatts in Alberta, and add long-term contracts to support Sun 7. We will also continue to work towards adding new long-term contracts in our Centralia operation. Finally, while doing all of that, we will continue to focus on a safety IFR at around the 0.9 level, which is first-class for a large infrastructure company.

So let me turn the call back over to Brent.

Thank you, Dawn.

So that we may rotate through callers, we will take one question, and one follow-up, from each caller before moving down the queue. We will answer questions from the investment community first, and then open the call to the media. We will then respond to individual investors, so please identify yourself when asking a question. I remind you that we do not provide guidance and that we will answer any model related questions off-line after the call.

Brock, we will not take questions, please.

(Operator Instructions)

Juan Plessis of Canaccord Genuity

Thank you very much. Dawn, with respect to targeted availability for 2013 of 89% to 90%, you've gone through a high plan maintenance year in 2012, and you met this target, but with lower planned outages going forward, wouldn't you expect your availability to edge up a little bit?

I think it's a great point, and certainly, when you look at the results for last year, you would expect that. But I think in terms of our planning, we continue to push in that 89% and 90% range. And if there's any upside that comes out of the year, that will be great. But that's where we are setting our target for the team.

And, yes, and I would also just indicate that that is across the fleet, and Centralia, obviously, is the one that economic dispatching on the Canadian coal side, as we pointed out Investor Day, we're in that 90% to 91%, in our guidance.

Okay, thanks for that. The CAD11 million of finance lease income for the quarter, that's mostly due to the Solomon contribution. Can you break out the contribution from Solomon?

It is predominantly, mainly from there. We have a lease from a smaller plant, so it's most of it.

So CAD9 million or CAD10 million a quarter is a good run rate for the Solomon contribution?

That's correct.

Okay. Thank you.

Ben Pham of BMO Capital Market

Hi, thanks and good morning. The first question is on Centralia. I know it's been years since you've moved to PRB there, just with the coal. Just can you just give us a quick update on the contacting profile, and more in terms of just with the rails, and the Powder River basin coal producers?

Sorry, I'm just not sure what your question--what's your question in terms of how we are contracting the coal? Or the rail? Or both?

Both.

Yes. I mean we have completed a change in the contracts for the rail to make the costs more competitive in terms of moving the PRB coal in, and so that was done right at the end of the year. And then on the PRB coal, we continue to have a mix of terms with those different PRB suppliers. As we look at the production profile for the plant, over the next couple years, depending on what prices do, we can either lengthen some of those contracts, or we can stay in the spot market depending on what we think is happening with that coal. That's really how we are approaching it.

Okay. So your decline in fuel costs for this year, part of that is reflecting just new contracts on the rail side, then?

Yes.

And, in part, lower coal costs. So all delivered rail, plus the coal commodity.

But it is the accommodation of lower rail, better coal costs, but also you got to watch that, because depending on how much we actually run, and how much production there is, will also affect us.

Okay. Thanks. And can I just sneak one more in on Centralia? Just in the contract of the Puget Sound addition coming end of March, are you in discussions with other Washington-based utilities right now, or is everything pretty much in a standby mode right now?

Are you talking about other potential customers?

Yes.

Yes, we are. Certainly, as people go through March and see how this contract does, I think that will make a difference, but more importantly, I think as supply and demand changes around in that region, and prices change. That gives people quite a bit of incentive to look at how to contract over the longer term.

Okay, great, thanks very much. Thanks, everybody.

Mark Barnett of Morningstar Equity Research.

You highlighted the delay of about a year for Sundance 7, given some units returning to service, and where you see demand. Does this delay or change some of your thinking around projects you might have been looking to pursue with MidAmerican? Maybe just to slow things down, or do you see the opportunity set across broader Canada still providing enough opportunities there?

For sure that right now we are a period in Alberta where we have to work really hard with the customers to see what their intentions are around oil sands development. There's been a lot of process, as all of you know, and have probably been following on getting the oil out of Alberta. And that is potentially could affect some of the plants of oil sand producers, which will affect growth in Alberta. Alberta's always a funny place, I mean there's a lot of discussion, but then people continue to want to build their facilities because they want to get in the queue, and get their cash, and make their money. Right now our teams are working very aggressively to look at what those opportunities could be.

At this point, I don't think I could say definitively one way or the other whether or not it delays those plants, because there's still a lot of work to do to evaluate that. But the MidAmerican and TransAlta teams work to continue work, both in Alberta and in British Columbia, and for the most part we saw a lot of that kind of blow coming on. Greenfield takes a while to develop, it takes a while to build. Most of the growth that would come from greenfield in those two regions is in that 2017 to 2020 timeframe. So we still see that timeframe as being valid, but it could be delayed a little bit here and there, depending on how producers adjust their plans, given some of the current pipeline capacity for getting oil out of Alberta.

Just a quick follow-up on that. Would you still say that there are some projects in the Generation queue in Alberta that maybe that don't make quite as much sense, given where we are standing today? I mean you mentioned new people, obviously, want to get their projects built. But do you think that there is a significant amount of capacity, maybe not as well-positioned as Sun 7, that might, should we see a continued sag maybe call it, in prices and demand, that might finally decide to drop out?

You know what, I'd never speak for what other people are working on. All I know is that our team continue to believe that capacity will be needed by the end of the decade. But we think, the most important criteria for investing in capacity in Alberta is cost structure. We are spending almost all of our time looking at the cost structure in Alberta. As you know, Alberta can be a very expensive place to build. It has a cost structure for most construction projects that's well above anywhere else, because of some of the tight supply considerations for labor. What we look at, at TransAlta, is just how can we make sure that our plant's the lowest cost in the stack, will have the highest availability, will be dispatched the most. That's the only thing you can do if you want to compete in the market here.

Thanks.

Linda Ezergailis of TD Securities

Thank you. Dawn, you mentioned your confidence in the Puget Sound appeal, or revisiting of that contract with the regulator, to be successful. What would be the basis for that? Is there any discussions or regulatory filings or back and forth that you can point to? And would you expect any sort of amendments to what Puget Sound is proposing to the regulator to be required?

Yes, Linda. What gives me confidence is that the dispute between Puget and the regulator isn't about the actual contract, or the terms and conditions of the contract, or the level of pricing. The contract overall, I think, is positive. There was some concern that if we didn't make a bit of an amendment to the contract that we could've shut the plant down, supplied from the market, and had the affect of not having people work there. So we made an amendment to make sure that that was not the case, because it was never in TransAlta interest, or case, that we wanted to find a way to get a contract for a coal plant, and then shut down a supply for the market. That was dealt with.

Really, what I see is that the issues are more on a broader--on the conditionalities that the regulators put in the contract on Puget that just weren't acceptable. There's a long history there of how that has worked for Puget and the regulator. What I see is them both working very positively to resolve that, in the context of the overall regulatory relationship there, and absolutely no indication that it will mean anything for the contract that we have with them. I'm taking confidence in I've seen good progress in that relationship, and that it's not about the Centralia contract. It's about a broader regulatory relationship.

That's very helpful. Now with respect to any other discussions you're having with utilities, I mean obviously, different utilities have different needs. They have the same regulator. Would you expect, maybe pricing a little bit aside or included in this question, similar attributes in any other contracts that you find with other utilities, or would there be a big variance based on the utility's needs?

Well, I would say that any other utility that was regulated by the Washington regulator, would have to expect a similar treatment if they went for a contract in terms of the equity kicker. But there are in that region, remember, that region also has a number of nonprofits, they're call [PUDs]. And they are not regulated by the Washington regulators, so they wouldn't participate in an equity kicker. But they also have fairly significant loads, and they have to be looking at their contracting going forward, and their next best alternative is natural gas. So those contracts, I think, are more just going to be what's the best price that we can negotiate between us.

There's also some potential, I mean there are some discussions with some of the out-of-state companies that are regulated by both Washington and other states. They are very individual discussions. There is no common theme that I can say it's going to look like this, and it really depends on whether or not people will, in the end, use what is called Centralia transition coal in their portfolios, as they move between now and 2025. The reality is that plant is more competitive than most resources in that region on a long-term basis. So, it is a good opportunity for them to add to their portfolios, and keep their overall prices to customers down.

Great. That's great context. Thank you.

Andrew Kuske of Credit Suisse

Thank you. Good morning. If you could just give us a bit more color around your OM&A costs, and really what you have been doing to tackle them, and to get them more under control with a more positive outlook in the future?

Yes, I think the key thing there is we have been quietly undertaking quite an investment in IT infrastructure over the last couple years. So that we can get a lot more of our systems and processes managed through some really good enterprise systems that allow us to take out a lot of the administrative burden on our teams. So just different things like we've now got a way to look at all of our projects in one system, project management system. We've got a best-in-class human resources system that has taken tons of time out of the work that managers, and people, have to do here at TransAlta. We are doing a number of things on the finance side to ensure that we've got simple reporting, consistent reporting.

We've got dashboards in place so that we are not asking our people to spend a lot of their time trying to find information and report it to us. We are actually able to get it, now, out of our IT systems. It's no different than any other company is undertaking, having one sorts of data, and one set of computer systems that help our management team see it. So when we finally got a lot of that stuff coming across the line, and then really thought about how we wanted to restructure the Company to get the right kind of focus, when you brought all of that together, it meant that we actually didn't need as many people to do the administrative side of the business. We, of course, always need the front-line people in terms of people to operate and maintain the plants and things like that, but at the end of the day, we found those efficiencies, and it did lead to some exits at the end of the year.

We don't expect that to be some sort of--we didn't see that--or you shouldn't see that as a cost-cutting exercise and the costs will sneak back in. They are actually a fundamental structural change that we've been able to implement, to just deliver a lower cost structure for the number of assets that we've had. We've also had our real push to push accountability out into the field for P&L, and make sure that all of our resources, for running our plants, are in the field, which allowed us to really slim down our corporate offices here in Calgary. That means more jobs out at the plants, but we think those jobs will give us better availability, lower costs, the right levels of sustained capital. It's just been an ongoing push that we've had.

Now, is there any quantification of improved availability, at the plant level, that you've got really from streamlining our operations, and just availability overall? And then, also, really preventative issues of seeing things happen before they happen? Or having a predictive view?

So let me talk about that in a few ways. So first of all, you can see evidence already in 2012, with the forced outage rates being down, that getting the plant engineering staff built up, and really making sure that the plants have what they need, has helped them reduce their forced outages. One of the initiatives that we put in place in 2009 as part of our three-year plan, was that we installed a very strict set of processes in our industry, for what is called work management. Really it's being on the predictive side of maintenance, instead of the reactive side of maintenance. We completed almost all of that work, for across our fleet, towards the beginning of 2012, and it's really taken hold now, as we have gone through 2012.

What that particular program does is it really allows our teams, out in the plant, to be much more thoughtful, much more planned about their routine maintenance, and to make sure that they are prioritizing that maintenance around availability issues. We are starting to see some of the payoff of that, both in terms of availability and, of course, as everybody knows, you spend, on reactive maintenance you spent three to six times more than you do on preventative maintenance. So we are now, as we go forward, we are hoping to see that we will see more cost efficiency in that program, as we go forward.

Okay. That's very helpful. Thank you.

Robert Kwan of RBC

Good morning. Just on the Alberta contracts, the price range is up about CAD5 a megawatt hour, and you nudge the hedging percentage up to 85%. Just wondering, how you thinking about that level or how you feeling with respect to that 90% target. Where do you want to be this year? And then with you moving the range up on relatively low volume, I know you probably don't want to get into a lot of detail around the variability or specific quarters, but is there a lot of variability in the hedge profile from quarter to quarter?

Yes, maybe Brett takes that one.

Yes, Robert, there can be. Because, as you know in this market, quarters trade different in terms of liquidity, and positions are different depending on outage schedules and all of that. So there can be variability in our hedge program. We provide, as you know, more across the year. Clearly our goal, as we indicated, and have indicated, is to increase that portion of contractedness, both within the year, and even as we look further out. There will always be a portion of our fleet which probably stays a little more open, just because of the nature of the volumes, like our wind is a good example of that. But, certainly, we are actively looking for opportunities, at the right time, to lock in some prices for locking in the cash flows.

Robert, is your question about whether or not we hedge using quarterly hedge prices or annual hedge prices? Or, because I think--

Well, I guess if--

Go ahead. (multiple speakers)

If there's color on that, that's great. Just more so, you talked about the forward curve being lower than where you are hedged. And just so if you've moved the hedges up, yet achieved higher pricing, one take away would be that you hedged up more in some of the stronger price quarters.

Yes, just to be clear. The prices, the hedges that we've put on in that CAD60 to CAD65 range were already put on, and they're done, they're behind us. They protect that portion of the cash flow. As we go into the year, the team has a target that they are trying to achieve. They have different levels of predictions that they have for each quarter, so they will have times where they think that prices might be higher, and it helps them hedge the rest of the year. Of course, we can't disclose that, but that's really how they approach it. And as you know in Alberta, you can be smarter than smart, and think you can see where the quarters are going to have different pricing in them, and really you don't know because there's all sorts of factors that change once you get there. But certainly, the way the teams are set up, they look for opportunities to take advantage of the pricing, and opportunities, as they come in the quarter.

For sure, okay. And just my last question is, as you've looked more at the federal coal regs, and specifically the substitution of flexibility clauses, is there any other color you had? I know there was some notion that you could borrow partial years from some of the newer units, and try to bring them back. Do you have any additional thoughts on that and that ability?

I don't have any additional thoughts on that. I think we are still--it's a complicated algorithm for us to look at. Where the plants are in terms of their lifecycle, and in terms of the investment that needs to be made to take them to 48.5 years. There's a lot of pretty sophisticated asset management that we need to do to figure out whether or not you are better off to run one plant to 45 years, and another to 50. We know we have the flexibility to do that, but the engineering work is much more complicated. So we are undertaking that as we go through the year. We also have to, in the end, come up with an equivalency arrangement with the Alberta government on that, so we need to be doing those discussions in parallel. I think it's probably something more that we could update you at our discussions with you in November next year.

Okay. That's great. Thanks a lot.

Philson Yim of Luminus Management.

Hi, just a follow-up on Robert's question. It didn't look like the hedge levels increased that much since November analyst day. So could we assume that the new hedges that were priced were much higher to bring that average price up? Much higher than where the forward prices would indicate?

Yes, again, we saw some improvement in 2013, when we're in late in the year, Philson. So you can assume that we are just giving you the average, and an indication of what the forward market is for the balance of the year, which is in the CAD50 to CAD55 range.

Got it. So was it more customers taking their own view about where prices would end up for the year versus just looking at the forward curve and what that indicates?

Yes. And, again, as Robert was, I think, getting at, we don't just hedge for annual, it is very much a quarterly activity. As you get closer, you can even go into the months, depending how far out it is. But we don't provide that detail for competitive reasons.

You have to go back and there is some good work that's been done on studies of the forward curve versus what actually happens, so you have to--we have various views on that. You can do hedging in the forward markets. You can do it with customers. We look at all of those different mechanisms. But in Alberta, the forward curve can move quite a lot around in the quarter.

Got it. Okay. And then so beyond 2013, can we carry this average price forward? For now?

Well, we haven't provided that level of detail yet, Philson, but certainly, as Dawn indicated, the forward market from our perspective is not the best indicator, and we showed this at Investor day. So we are going to actively look for--we were actively out there, as we talked about, with our [C&I] business in terms of entering into two-, three-, four-year contracts and working with others to see if we can get longer. So prices would be, probably, not as high as what we are seeing, so slightly lower just because the curve is down a bit more, but we haven't updated that to the market at this stage.

Yes, I think, Philson, the work that [Juan] has done at Canaccord, is some of the best work I've seen on how to think about the operative markets. We showed that in Investor day, and he's done a lot of work on that so he'd be someone that you could talk to.

Got it. Thank you.

(Operator Instructions)

Paul Lechem of CIBC

Thank you, good morning. Just with relation to the CE Gen plants, you had another loss within the quarter there, a bit larger this time. Can you talk about what actions you are taking to try and bring those plants back into profitable level?

The team down there is working very hard with the local utilities to re-contract those plants. As you know, in that marketplace, some of those contracts are also related to gas pricing, and so it's a similar story to Centralia where plants that have had some gas price indexing affecting their pricing are seeing lower profitability. The challenge is to try to move away from short-term pricing into more long-term type pricing arrangements with the local utilities that have, as you know, targets for immediate renewables, and ever increasing targets in the California market. We are undertaking the same kind of work there as we have been in the Centralia plant, and have been for a while.

And when do you expect those plans to actually start showing results from all this effort?

Where do we--?

When? When? Should we be expecting in 2013 to see these plants trend back to, at least, break even?

We will update you as those contracts occur, and then provide you with that information. In addition to that, we constantly look at are there, like we do in Alberta and the Pacific Northwest, opportunities to hedge shorter term, and lock in some values. It's an active program in terms of long term, and shorter term activity.

So Paul, we do have resources focused on that with goals and targets set to get that kind of work done in 2013, but as you know, it also requires the other side to want to close the contract. So they are working hard. Hopefully, we can get some of the California utilities to close on those plants.

Okay. Thank you.

Jeremy Rosenfield of Desjardins Capital Markets

Yes, thanks, and good morning, everybody. Just a few questions. Just more from a strategic perspective. There is that one line in the presentation that mentions the opportunity to acquire wind assets in the Western US. I'm wondering, here, if you are looking at more on a single asset basis, or something on a portfolio basis. And then also, the follow on, do you have a soft of nominal dollar amount that you are considering, and does that relate at all to the drift in terms of the size of equity that you'd be looking to deploy?

I mean all I can really say there is there's a lot of assets that are potentially trading in the market there. There's groups of assets, there's individual assets, it's from a variety of players. I would say that our team is in the deal flow in almost everything that's for sale in that market, and looking at it, and evaluating it, and thinking about how we would do that to add value for our existing shareholders. Lots of competition, for sure, for those kinds of assets coming from a variety of places.

For us it's about making sure that, A, we have a competitive advantage against the competition, and B, that we can get the returns that will be accretive to our shareholders. In terms of how we finance it and all of that stuff, it's all -- we look at that all on a deal by deal basis. It's part of our competitive positioning. I really can't say much more other than lots of volume. If we can find a way to be more competitive than other people and provide accretive returns, then we are hoping to expand our business there this year.

Okay, great. And previously, you have elaborated on the potential for creating some value within your own renewable power portfolio. I'm wondering if that's been advanced at all, and if there's any updates on that?

I think it all works together. As we are thinking about how to expand that business, thinking about how to--what the mechanism will be to both expand that business, and unleash that value so that shareholders see it more clearly. Our top of mind for the finance team is they are working on a variety of different kinds of structures to think about how to do that.

Okay. And maybe just one last question. In terms of planned outages for the coming year, obviously, much lower in terms of major maintenance for the coming year than last year. But can you elaborate on which units specifically have major maintenance outages in the coming year?

Yes. So we've got two of our wholly owned, 4 and 6, and then there is two partially owned. Sheerness always does an outage in the year and it's K3.

Okay. Great. Thanks a lot.

This concludes the analyst Q&A portion of today's call. We will now take questions from members of the media.

(Operator Instructions)

Jeff Lewis of the Financial Post

Hi there. Just looking for some additional comments on LNG in BC. You've previously identified that there is up to 4000 megawatts needed to run those facilities after 2018. I'm just wondering, how are you approaching those opportunities, following the MidAmerican partnership. Given some of the issues in BC around transmission, and government direction on natural gas versus using other power sources to run those facilities?

It's a fairly, first of all it's a very interesting opportunity for Canada. And I think as we work in British Columbia, we certainly see a lot of enthusiasm there, with BC Hydro and the government, to figure out how to make sure that anybody who tries to locate an LNG plant can have a competitive source of power. They are competing, for sure, in British Columbia with LNG plants that are also very competitive from Australia, so it is really a competition of the Canadians and the Aussies. So what we're doing is we are working--the best way to work this is to work with the actual direct customers, because they are the ones that need the assurance that they can bring in low-cost supply. So we are working with them. We are working with BC Hydro to see where the behind the fence needs might be versus where they can supply from the grid.

There's lots of grid benefit, that if you do a behind the fence plant, and you tie into the grid, you can create additional benefits for British Columbia, and for the LNG customer. And then also, of course, in British Columbia, if you really want to get projects done, you have to be cognizant of the work that needs to be done with the first nation, so we've been working there as well. So we work with the first nations, we work with the government, we work with BC Hydro, and we work with behind the fence suppliers. If the behind the fence guys use gas drives, there's less of a requirement for power, but there's still a significant requirement. Some of them are thinking about going to electric drives, which is much stronger on the environmental front. That requires more behind the fence power.

It's really akin to the business that we do in Western Australia with the miners. In the Western Australian market, there is not enough grid to supply those mines, and so we tend to work with those minors, behind the fence, buying power supply that gives them their reliability. And then where we can, we try to help connect it into the grid to get additional benefits. So the kind of work we do in Western Australia is exactly the kind of the work we are doing in BC, but a ways to go. And the good news is, because of the--we've got a long history of doing behind the fence work in gas fire generation, over the last 15 years, with large customers, mining customers, oil and gas customers, and MidAmerican also has that history. Between the two of us, we've got the right balance sheet to be in those discussions, so that's how we are approaching it.

Okay. And so have you talked to any of the export proponents?

We've talked to lots of people.

Okay. Thank you.

Jeremy van Loon of Bloomberg News

I just wondered if you could talk a little bit about the medium to long term outlook in terms of the power mix here in Alberta, vis a vis natural gas, and perhaps wind. How do you see pricing evolving on natural gas? Are you expecting to continue to see these pretty low stable prices, or at what point do you start to introduce some diversity into the network here?

Well, Alberta already has quite a bit of wind in the marketplace, here. It's probably an unknown fact about Alberta, which we need to get out more, because people don't recognize that we are, I think, 700 megawatts of wind in a 10,000 megawatt market. So we're seeing the wind come in. In terms of the question around natural gas pricing, you all know that the consensus is emerging that prices could stay low. We are seeing, some of the forecasters are starting to have an upward view on gas prices. I have no idea what gas prices are going to do, and if I did know that, I probably wouldn't be in this job.

So I think the key thing there is trying to figure out, given a range of potential pricing outcomes, what will happen in the Alberta market. For sure, if gas prices stay in that. Wind and gas are fairly competitive with one another when gas prices are in that CAD4.50, CAD5 range. Because the capital costs of wind have been coming, and the gas prices are still fairly expensive, because they are expensive to build here in Alberta. The challenge in the Alberta market is that when the wind blows, the prices are depressed. And wind is very hard to hedge. Those are the kinds of things that have to change here in Alberta, if there is going to be more wind.

So as we look forward, we do think the mix will be more gas than wind, similar to other regions, but there will need to be some structural changes in two ways in the Alberta market. You simply cannot have wind depressing its own prices or you cannot make an economic return. So that has to be fixed in the market. And as well to bring on large-scale gas plants that are costs CAD1.5 billion, there has to be a long-term pricing mechanism. Because rational investors will not take the risk on that kind of capital, without having their capacity payments covered in some way.

Are you seeing any movement in terms of provincial regulations that might help to address some of those issues?

I think there, certainly, the ISO has been doing some work to figure out what needs to be done on the wind side, so there could be something this year or next year on that. We don't know. We are hoping to see some movement there. And I think there is a recognition, overall, in the market that to bring on new capacity, the capital has to be protected in some way. Really, those conversations have not really started yet. There's enough power for a couple years, so we have time to get that done.

Okay. Thanks.

There are no further questions. I will hand the call back over to Mr. Ward for any closing comments.

Thank you, everyone. Just to reiterate, if there is any follow-up questions, we are available after the call to handle them, and throughout the day, and the week. But this concludes the call. So thank you.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect your lines. Thank you for participating, and have a pleasant day.